10-Q: Arcimoto Reports Q3 2023 Results: Revenue Declines Amid Cost-Cutting Efforts

Sentiment:

Quarterly Report 12 February 2024 6:11 AM

Arcimoto's Q3 2023 results reveal a revenue decrease alongside significant cost reductions as the company navigates financial challenges.

Capital raiseThe company obtained additional funds totaling $12.0 million via a confidentially marketed public equity offering on January 18, 2023.In June 2023, the Company raised approximately $2,300,000, net of fees, from a registered direct offering.On August 15, 2023, the Company received $4.2 million, net of fees, from an offering of Series D Convertible Preferred Stock.The company is pursuing additional financing solutions through credit and equity markets.

Worse than expectedRevenue decreased by 45% in Q3 2023 compared to Q3 2022, indicating a decline in sales performance.

Summary

Arcimoto, Inc. reported its financial results for the quarter ended September 30, 2023.
Revenue decreased by 45% to $1.11 million compared to $2.02 million in the same period last year, primarily due to lower vehicle sales and rental revenue.
Cost of goods sold decreased by 58% to $2.96 million, driven by workforce reductions and lower material costs.
Operating expenses decreased by 59% to $5.77 million due to workforce reductions and reduced spending on research and development, sales and marketing, and general and administrative activities.
The company recorded a net loss of $14.04 million, compared to a net loss of $16.96 million in the prior year.
For the nine months ended September 30, 2023, revenue increased slightly by 1% to $4.22 million.
The net loss for the nine-month period was $34.14 million, compared to $47.32 million in the prior year.
The company is implementing cost-cutting measures, including workforce reductions and production adjustments, to address its financial challenges.
Arcimoto is pursuing additional financing solutions through credit and equity markets.
There is substantial doubt about the company's ability to continue as a going concern for at least one year from the issuance of these financial statements.

Sentiment

Score: 4

Explanation: The document presents a mixed sentiment. While cost-cutting measures and reduced losses are positive, declining revenue and concerns about the company's ability to continue as a going concern weigh negatively. The company is also facing lawsuits, adding to the uncertainty.

Positives

Cost of goods sold decreased by approximately $4,025,000 or 58%, primarily driven by the reduction in workforce and decreases in certain manufacturing-related materials, as we scaled purchasing to match demand.
Operating expenses decreased by approximately 59% or $8,181,000 for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 and 50% or $16,874,000 for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.
The company produced its 1000th FUV in June 2023.

Negatives

Revenue decreased by 45% in Q3 2023 to $1.11 million compared to $2.02 million in Q3 2022.
The company is dependent on a single supplier for its battery cells.
The company's disclosure controls and procedures were ineffective as of the end of the period covered by this report.
There is substantial doubt about the company's ability to continue as a going concern for at least one year from the issuance of these financial statements.

Risks

The company may not have the capital resources necessary to further the development of existing and/or new products.
The company may not be able to reduce costs to the level necessary to unlock the market potential for its products.
The company may be subject to recalls due to software glitches and/or faulty parts.
The company's business has been consistently generating negative cash flow from operations.
The company is facing lawsuits for breach of contract.

Future Outlook

The company plans to pursue other financing solutions through the credit and equity markets and continue implementing cost-cutting measures. The company expects capital expenditures to be between $500,000 to $1,000,000 in 2023.

Management Comments

The Companys primary focus is on volume-production planning and reaching sustainable profitability.
At the Company, we believe that if we right-size, electrify, and better utilize our vehicles, we can reclaim our shared space, help clean our skies, and make cities more livable for us all.

Industry Context

Arcimoto operates in the electric vehicle industry, which is characterized by rapid technological advancements, increasing competition, and evolving consumer preferences. The company's focus on three-wheeled electric vehicles targets a niche market segment, but it faces competition from established automakers and emerging EV companies.

Comparison to Industry Standards

Comparing Arcimoto's performance to industry standards is challenging due to its unique product offering and smaller scale compared to major EV manufacturers like Tesla, Rivian, or Lucid.
Tesla, for example, has achieved significant economies of scale and brand recognition, allowing it to command higher prices and achieve profitability, while Arcimoto is still in the early stages of scaling production and reducing costs.
Companies like ElectraMeccanica, which also focuses on three-wheeled EVs, could be considered a closer peer, but ElectraMeccanica has also faced challenges in achieving profitability and scaling production.
Industry benchmarks for gross margin, operating expenses, and net loss vary widely depending on the company's stage of development, product mix, and target market.
Arcimoto's cost-cutting efforts and focus on revenue generation are crucial for improving its financial performance and achieving sustainable growth in the long term.

Legal Proceedings

The Company has been sued in the Circuit Court of the State of Oregon, DWFritz Automation, LLC (DWFritz) v. Arcimoto et al. (Case No. 23CV45784 filed on November 7, 2023) for breach of contract.
The Company has been sued in the state of New Jersey by Highland Capital for breach of contract.
The Company has been sued by Roush Industries filed on January 31, 2024 for breach of contract.
The Company has been sued in the United States District Court for the Northern District of Illinois Eastern Division, Deutsche Leasing USA, Inc. (Deutsche Leasing) v Arcimoto, Inc (Case No. 24-cv-00429 filed on January 25, 2024) for breach of contract.

Related Party Transactions

On May 26, 2023, the Company entered into a $500,000 promissory note with a director of the Company (the Related Party Note).
On April 25, 2022, the Company entered into a $4,500,000 convertible promissory note agreement with Ducera, a related party because a partner at Ducera is also a member of the Company's Board of Directors.
On September 1, 2022, Arcimoto reimbursed Ducera Investments LLC approximately $67,000 for third party legal fees and expenses in conjunction with the issuance of the September 2022 Note.

Stakeholder Impact

Shareholders face uncertainty due to the company's financial challenges and potential dilution from future capital raises.
Employees have been impacted by workforce reductions and may face further job insecurity.
Customers may be concerned about the company's ability to fulfill orders and provide ongoing service and support.
Suppliers may face increased risk of non-payment or contract renegotiation.
Creditors face increased risk of default due to the company's financial difficulties.

Next Steps

The company intends to increase its conversion rate for both its rental operations and demo drives through increased engagement at each step of our customer journey and grow our drive volume by expanding our geographical footprint through various channels.
The company will continue to build Rapid Responders in cadence with sales orders, delivered to customers via specialized upfitters, to support commercial new pilot programs.
The company will continue its efforts to drive down component and parts costs of Arcimoto ultra-efficient electric vehicles.

Key Dates

Date	Description
2007-11-21	Arcimoto, Inc. was incorporated in the State of Oregon.
2018-06-09	The 2018 Plan authorizing 50,000 shares was approved by the Board of Directors and the Company's shareholders at the Company's 2018 annual meeting of shareholders.
2019-03-19	Development of the Deliverator was officially announced with the reveal of the first Deliverator prototype.
2020-04-20	The board of directors approved an increase from 100,000 to 200,000 shares under the 2018 Omnibus Stock Incentive Plan.
2020-06-20	The increase from 100,000 to 200,000 shares under the 2018 Omnibus Stock Incentive Plan was approved by a majority of the shareholders.
2020-10-26	Arcimoto announced a partnership with DHL to provide nationwide home delivery of the FUV.
2021-02-01	The Company acquired Tilting Motor Works.
2021-06-11	A majority of the shareholders approved an increase from 200,000 to 300,000 shares under the 2018 Omnibus Stock Incentive Plan.
2021-07-26	The Arcimoto Flatbed prototype was introduced at the FUV & Friends Summer Showcase.
2021-04-19	The Company purchased an approximately 220,000 square-foot facility to expand production capabilities.
2022-01-14	The Company entered into an agreement with Canaccord Genuity LLC to raise the at-the-market (ATM) offering amount to $100,000,000.
2022-04-25	The Company (Debtor) entered into a $4,500,000 convertible promissory note agreement with Ducera Investments LLC 2022 Series A (Creditor).
2022-07-29	Arcimotos shareholders approved the 2022 Omnibus Stock Incentive Plan.
2022-08-20	The first Company-owned rental center in Hawaii opened.
2022-08-31	The Company entered into a Securities Purchase Agreement (the SPA) with a third-party investor (the Buyer or the Holder).
2022-09-01	One note (the September 2022 Note) in the amount of $10,000,000 with 25,000 accompanying warrants (the Warrants) were issued to the Buyer.
2022-10-04	The Company signed an equity line of credit (ELOC) agreement with Tumim Stone Capital LLC whereby the investor will provide up to $50,000,000 of financing with certain restrictions.
2022-11-11	The shareholders approved an agreement to obtain additional funding (with certain restrictions) in order to finance our operations and growth with a $50,000,000 equity line of credit and a reverse stock split of the Company's stock of 1-for-20.
2023-01-03	The Company temporarily paused vehicle production.
2023-01-18	The Company obtained additional funds totaling $12.0 million via a confidentially marketed public equity offering.
2023-02-12	The Company resumed production.
2023-02-17	The Company obtained a loan that is secured by the Company's land and buildings.
2023-05-26	The Company entered into a $500,000 promissory note with a director of the Company (the Related Party Note).
2023-06-12	The Company completed an equity offering raise in excess of $500,000.
2023-06-16	The 2022 Plan was amended to increase the number of shares available for issuance to 1,600,000.
2023-07-14	The Company extended the maturity date of the mortgage loan six months to February 2024.
2023-08-14	The Company filed a Certificate of Designation of Preferences, Rights and Limitations designating 8,466 shares out of the authorized but unissued shares of its preferred stock as Series D Convertible Preferred Stock with a stated value of $1,000 per share.
2023-08-15	The Company entered into a securities purchase agreement (the Third Purchase Agreement) with certain investors (collectively, the Third Purchasers).
2023-08-20	The Company opened its Honolulu Experience Center.
2023-09-30	End of the quarterly period.
2024-02-09	Accounts payable balance is approximately $9,500,000, of which a significant amount is more than 30 days past due.
2024-02-12	Date of report filing.

Keywords

financial results, electric vehicles, cost reduction, revenue, Arcimoto, FUV

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